Replies to post #83580 on Tesla Inc (TSLA)

[la-tsla-fan]

$Green$: Your post struck a nerve! I love contrarians, who, by definition have minority opinions. However, bear opinions expressed by the bars on this board are Not backed up by reason. And THAT was my objection to your post. My rationale for being a Tesla but is set out in the attached email that I sent to my nearest and dearest last year:

I am sending this email because I am absolutely convinced that we have a once-in-a-lifetime opportunity to get into an investment that may make its current astronomical valuation seem like pocket change.

I am of course talking about Tesla. Over the years I have learnt a fair bit about investing in general, and Tesla in particular. In this email I am going to set out my thesis. Your comments are more than welcome. By sending this email I am doing a few things, but have zero expectations. And I certainly do not intend to derive any benefit from your action or inaction. In fact, my sole objective is to share and learn.

Current Price

Tesla is trading currently at about $900. Certainly not a bargain at 107 times trailing earnings. See https://ycharts.com/companies/TSLA/pe_ratio. The same link shows that the Tesla P/E is the lowest it has been in over five years.

Tesla's growth rate has been such that on a forward earnings basis, the P/E drops to about 75. Another way of examining Tesla's valuation is to look at its forward PEG which is simply its P/E divided by the predicted average growth rate over the next five years. Tesla's growth of its net earnings has been nothing short of mind-blowing. Ever since Tesla started making profits consistently (about two years now) its earnings have increased from 27 cents per share for Q3 2020 to $1.95 in Q2 2022. Elon Musk's estimated growth rate for auto production (which has been eclipsed the last couple of years} is 50%. Just using that conservative number, Tesla's PEG is currently just over 2. See Tesla, Inc. (TSLA) - Earnings History For a historical reference, Tesla's PEG was lower just a month ago - because the stock price was ridiculously low. Other than that anomaly, Tesla's PEG has never been lower.

Tesla, Inc. (TSLA) - Earnings History


Electric Vehicle Adoption Rates

EV demand is exploding. There are several reasons for this:

1. The drive train is almost simplistic compared to the traditional IC car. A power source (battery), inverter, and one or more motors. There is no engine, transmission (if you have at least two motors, with just one motor you DO need a rather simple transmission), engine oil, transmission fluid, and myriad other associated systems.

2. Convenience: No gas station ever. Wake up to a full 'tank' each and every morning. No need for maintenance. I remember my first Model S. I had prepaid for the first thee 'services'. When I took the car in for its first service, the service advisor asked me: "What do you want done?"!!!

3. Zero emissions. There is a long-winded debate about lifecycle emissions, which most of us do not really care about. All I know is that emissions are easier to control when they are not coming from a mobile source.

4. Adaptive Cruise Control (ACC) that stops and restarts the car. Most IC cars have adaptive cruise control. However, the gear shift makes it expensive and problematic to start and stop. All EVs (with the exception of Porsche Taycan) have a single speed transmission. And that makes stopping and restarting a piece of cake.

5. Full Self Drive which is a feature that people still dream about is impossible without full-fledged ACC. Therefore it is much more likely to hit EVs before mainstream IC cars.

Notice I did not mention the new incentives unveiled in the Schumer-Manchin bill. As with most government action, it is delayed, and usually incorrect. For instance, imagine incentivizing plug-in hybrids when we are trying to phase out fossil fuels!

Whatever the reasons, more new car buyers are willing to consider EVs seriously - see More car buyers ready to consider EVs, but lack of charging access remains hurdle for some

More car buyers ready to consider EVs, but lack of charging access remai...
New electric vehicle offerings are pushing more consumers to consider EVs, but charging hurdles and income inequ...


The government should address the lack of charging stations.

So now the last part of my thesis. EVs are being manufactured by ever auto copmpany. Even Toyota has got in on the act. These companies are industry heavyweights. What makes me think that Tesla can beat them ALL back?

Why TESLA?

1. In my opinion (I am certain that Sandeep, Shilpa, Moneesh and Nishu will have opinions on this), Tesla is the best managed company there is. Think about it. In governments a benevolent dictatorship is considered the best form of government. For company managements, the same thing applies ONLY if the leader is a person with vision, skills, courage and determination. Elon has exhibited all of these attributes in spades.

The following actions and decisions he took years ago illustrate my point:

a. Should we focus on EVs or chargers? Why choose. Surely it is the chicken or egg! Let's do both!

b. Should we go bottom up or top down? Top down!

c. Can a rocket be reused? WHY NOT?

d. Can you build a new factory in less than two years? We'll never know unless we try!

e. We do not have the permits necessary for construction. If we have to, we'll tear it down and start all over again!

2. Tesla had a significant advantage in the auto industry by learning early on what not to do. They successfully avoided setting up dealer networks, even if state laws required it (they are still fighting the laws in, of all places, TEXAS). They avoided having huge supplier networks, and, best of all, they have so far, avoided unions.

Elaborating on the above:
Lack of knowledgeable salespeople in dealerships that depend on IC car sales for their livelihood.
Demand-based pricing set by dealers - see Dealers Are Marking-Up EVs, Too. I would rather have extra profits go to Elon, because he knows what to do with the money.


Dealers Are Marking-Up EVs, Too
Ira Boudway
And that’s not necessarily a bad thing.

The major advantage cited often for dealerships is that they provide better service. Maybe they do; admittedly Tesla has grown so fast that their service leaves something to be desired. However, the manufacturer learns a lot about its cars by servicing them. Some dealerships are great at sharing their expertise with the manufacturer. Most, however, couldn't be bothered.
Design changes with a large network of suppliers are hard to implement. A recent example was the supply chain problems that plagued all manufacturers. The ONLY ones to thrive in spite of those problems were vertically integrated companies like TESLA.
In spite of what Biden and company say about unions, the union bosses represent themselves, not their members.
3. TESLA has demonstrated success through large scale manufacture. Perhaps LUCID and RIVIAN will also succeed, but the jury is still out.


POTENTIAL

Just as an auto manufacturer, I think Tesla stock will be at least a 5-bagger, and possibly a 10-bagger in 5 years or so. Mind you, I predicted Tesla would hit $1,000 a share five years ago. They accomplished that feat - AFTER a 5 for 1 split! I predicted 5-10 years; they took just three!

However, what excites me even more is the potential of an even bigger payout. The bigger payout depends on solving the extremely intractable problem of FSD. Elon has admitted many times that FSD is a larger problem than he has ever faced , for instance, see
Elon Musk talks Twitter, Tesla and how his brain works — live at TED2022


Elon Musk talks Twitter, Tesla and how his brain works — live at TED2022
Play


Will FSD ever be solved? What I know for a fact is that FSD can be solved by Elon, and not too many others. In fact, most companies that have tried, have already given up and settled. Examples are WAYMO, GM and China's Baidu. See
Where the billions spent on autonomous vehicles by U.S. and Chinese giants is heading


Where the billions spent on autonomous vehicles by U.S. and Chinese gian...
Rebecca Fannin
Billions of dollars are being spent to bring self-driving vehicles to the road. Commercial autonomous vehicles l...


When I say 'given up and settled' I mean they have come up with fully mapped enclaves that are suitable for hands-free driving. That is NOT the Holy Grail.

It is possible that some other company will prove full self driving before Tesla. In the extremely unlikely event that happens, not all is lost. Tesla's profitability will be reduced by the payable royalty, but NO company is better positioned to take advantage of full self driving.

The big payout with Full Self Drive (sometimes referred to as Level 5 Autonomy) is Robotaxis, which open up the tremendous market currently dominated by Uber, Lyft and Yellow Cab.

The second potentially humongous payout for Tesla is the Tesla bot, which goes by the name of Optimus. Elon has stated that the Optimus probably has more potential than the auto!

I am not even going to address other markets Tesla has already entered or may enter soon, like auto insurance and HVAC.

[la-tsla-fan]

In rereading my post to you, containing my 22 email, I was struck by how my thesis has held up and applies even more today. However, you may feel ask why the SP is below 230. I am tempted to say: Because of shorts like you! However, I KNOW that the power of shorts to DIRECTLY affect the stock price is strictly limited. After all, they control just over 3% of the stock. However, they do have the ability to get their obedient editors to release negative stories about Tesla, which is an indirect way of controlling the stock price. For instance, today's hit piece about autopilot IGNORES the fact that the recall is nothing but normal, The perceived problem with autopilot is strictly in the eye of the NHTSA. I have been using FSD for months now without any issues - well, my ONLY issue is how tightly Tesla watches and controls my every move!